Archive for the ‘Wal-Mart’ Category

Friday Roundup

Friday, February 21st, 2014

Wal-Mart’s FCPA expenses, scrutiny alerts and updates, quotable, February 21st, further to the conversation, and for the reading stack.   It’s all here in the Friday roundup.

Wal-Mart’s FCPA Expenses

For over a year now, I have been tracking Wal-Mart’s pre-enforcement action professional fees and expenses and calculating what Wal-Mart is spending per working day on its FCPA scrutiny and exposure.  (See here for the prior post with embedded links to others).  Here is what Wal-Mart executives said yesterday in its earnings conference call for the fourth quarter of FY 2014.

“Core corporate expenses [for the fourth quarter of FY 2014] increased 5.8 percent. FCPA and compliance-related expenses were approximately $58 million, which was below our guidance of $75 to $80 million for the quarter. Approximately $38 million of these expenses represented costs incurred for the ongoing inquiries and investigations, while the remaining $20 million was related to our global compliance program and organizational enhancements.”

[...]

“Corporate & support expenses [for the fiscal year 2014] increased 24.1 percent for the full year, primarily from our investments in leverage services and Global eCommerce. Core corporate expenses, which included $282 million in charges related to FCPA matters, increased 15.6 percent. Approximately $173 million of these expenses represented costs incurred for the ongoing inquiries and investigations, while the remaining $109 million was related to our global compliance program and organizational enhancements.”

[...]

“During the first quarter of this year, we will begin to anniversary the increased costs we’ve incurred for FCPA matters, including compliance program enhancements and the ongoing investigations. These costs will remain in the Corporate and Support area, and we anticipate expenses to be between $200 million and $240 million for the year. [for the fiscal year 2015]

You add it up, and here is what you get.

FY 2013 = $157 million (approximately $$604,000 per working day)

FY 2014 = $282 million (approximately $1.1 million per working day)

FY 2015 = $200 – $240 million (anticipated)

As Wal-Mart’s FCPA scrutiny will once again demonstrate, settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.

Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts).  For instance, the total of the above pre-enforcement action professional fees and expenses and estimates is approximately $659 million.  A $659 million FCPA settlement amount would be second of all-time.

That pre-enforcement action professional fees and expenses are typically the most expensive aspect of FCPA scrutiny is a fact.  However it must nevertheless be asked whether FCPA scrutiny has turned into a boondoggle for many involved.  Using just Wal-Mart and Avon’s pre-enforcement professional fees and expenses results in FCPA Inc. being over a billion dollar industry!

Is Wal-Mart’s conduct for which it is under scrutiny in violation of the FCPA?  Does it even matter?  See my article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure.”

Scrutiny Alerts and Updates

Knut Hammarskjold

Earlier this week, the DOJ announced that Knut Hammarskjold “pleaded guilty today for his role in a scheme to pay bribes to foreign government officials and to defraud PetroTiger.”  According to the release, Hammarskjold pleading guilty “to an information charging one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and to commit wire fraud and is scheduled for sentencing on May 16, 2014.”  Despite the DOJ’s announcement, the docket for Hammarskjold’s case does not contain the plea agreement or related documents.  For a comprehensive summary of the DOJ’s charges against Kammarskjold and co-defendants Joseph Sigelman and Gregory Weisman, see this prior post.  As noted in the previous post, Weisman has also pleaded guilty and the charges against Sigelman remain pending.

Mead Johnson

As highlighted in this previous Friday Roundup, last year Mead Johnson Nutritional Company disclosed an internal investigation related to business practices in China.  Thus, contrary to certain reports Mead Johnson’s FCPA scrutiny is not “new,” but earlier this week, the company updated its disclosure as follows.

“Following an SEC request for documents relating to certain business activities of the Company’s local subsidiary in China, the Company is continuing an internal investigation of such business activities. The Company’s investigation is focused on certain expenditures that were made in connection with the promotion of the Company’s products or may have otherwise been made. Certain of such expenditures were made in violation of Company policies and may have been made in violation of applicable U.S. and/or local laws, including the U.S. Foreign Corrupt Practices Act (the “FCPA”).  The investigation is being conducted by outside legal counsel and overseen by a committee of independent members of the Company’s board of directors. The status and results of the investigation are being discussed with the SEC and other governmental authorities.  At this time, the Company is unable to predict the scope, timing or outcome of this ongoing matter or any regulatory or legal actions that may be commenced related to this matter.”

Lyondellbasell

As highlighted in this 2010 post, in connection with a bankruptcy proceeding, Lyondellbasell’s disclosed as follows.

“We have identified an agreement related to a project in Kazakhstan under which a payment was made in late 2008 that raises compliance concerns under the U.S. Foreign Corrupt Practices Act (the “FCPA”).

Yesterday the company disclosed:

“We previously reported that we had identified, and voluntarily disclosed to the U.S. Department of Justice, an agreement related to a former project in Kazakhstan under which a payment was made that raised compliance concerns under the U.S. Foreign Corrupt Practices Act (the “FCPA”). In January 2014, the U.S. Department of Justice advised the Company that it had closed its investigation into this matter. No fine or penalty was assessed.”

In the minds of some, this is a declination.  I beg to differ – see here.

Baxter International

The company recently disclosed as follows.

“The company was the recipient of an inquiry from the U.S. Department of Justice (DOJ) and the SEC that was part of a broader review of industry practices for compliance with the U.S. Foreign Corrupt Practices Act. In January 2014, the company was notified by both the DOJ and the SEC that their respective investigations were closed as to Baxter without any further action taken by either agency.”

For a previous post regarding Baxter, see here.

Alstom

Bloomberg reports:

“Alstom SA, the French maker of trains and power equipment, will be charged in the U.K. over bribery allegations after a five-year investigation, according to two people with knowledge of the case.  The Serious Fraud Office may ask the attorney general to approve charges in the coming weeks, a standard requirement for the agency to prosecute some offenses, according to the people, who asked not to be identified because the case is private.  [...] The SFO said in 2011 it suspected that Alstom gave money to companies that acted as “bogus consultants” to bribe overseas officials for contracts from 2004 to 2010, according to court papers at the time.”

If Alstom does face criminal charges in the U.K., the charges are unlikely to fall under the U.K. Bribery Act as the law went effective in July 2011 and is forward-looking only.  As highlighted in previous posts (see here for instance) in 2013 the DOJ brought charges against four individuals associated with Alstom concerning alleged conduct in Indonesia.

Quotable

In this recent Chicago Tribune article, Tom Pritzker (Chairman and Chief Executive Officer of The Pritzker Organization, LLC - the principal financial and investment advisor to various Pritzker family business interests) reportedly stated as follows at a recent Chicago Council on Global Affairs event:

“The way that [FCPA] enforcement is working out of Washington strikes all of us in American business as arbitrary.  It’s a revenue-generating mechanism for Washington, and that makes it additionally difficult in terms of how you figure out how to navigate emerging markets.”

February 21st

Today is a notable day in FCPA history (see this prior post).

I am grateful that I – and this website – have played a role in these events.

Further to the Conversation I

As frequently highlighted on these pages (see here for instance), trade barriers and distortions are often the root causes of bribery and a reduction in bribery will not be achieved without a reduction in trade barriers and distortions.

Simply put, trade barriers and distortions create bureaucracy.

Bureaucracy creates points of contact with foreign officials.

Points of contact with foreign officials create discretion.

Discretion creates the opportunity for a foreign official to misuse their position by making demand bribes.

This recent Wall Street Journal article highlights China’s “quota system” for foreign-films.  As the article states:

“[34 is] maximum number of foreign titles the Chinese government allows into its nation’s theaters every year, a quota in place to try to protect China’s own nascent movie business. Hollywood studios have wondered when that number might be boosted—the last time was in February 2012, when Vice President Joe Biden announced a deal increasing the quota to the current 34 titles, from 20.”

Perhaps you’ve heard that various film companies are under FCPA scrutiny concerning business practices in China.  (See here).

Further to the Conversation II

Whether it’s a federal court judge stating that a pending federal criminal case is “not window dressing” nor is the court  “a potted plant” in concluding that a federal court does indeed have supervisory authority over the DPA process (see here for the prior post) or whether it’s a federal court judge criticizing various common aspects of corporate criminal law enforcement, including DPAs, as “both technically and morally suspect” (see here for the prior post) – there is an important conversation taking place concerning how the DOJ resolves alleged instance of corporate criminal liability.

Further to this conversation, the Better Markets, Inc. (a group that advocates for greater transparency, accountability, and oversight in the financial system) recently filed this complaint for declaratory and injunctive relief against the DOJ and Attorney General Eric Holder.  While the complaint reads more like a policy paper than a complaint, it nevertheless calls the $13 billion settlement between the DOJ and JPMorgan a “mere contract” and alleges in pertinent part:

“Yet, this contract was the product of negotiations conducted entirely in secret behind closed doors, in significant part by the Attorney General personally, who directly negotiated with the CEO of JP Morgan Chase, the bank’s “chief negotiator.” No one other than those involved in those secret negotiations has any idea what JP Morgan Chase really did or got for its $13 billion because there was no judicial review or proceeding at all regarding this historic and unprecedented settlement. However, it is known that JP Morgan Chase’s $13 billion did result in almost complete nondisclosure by the DOJ regarding JP Morgan Chase’s massive alleged illegal conduct.

Thus, the Executive Branch, through DOJ, acted as investigator, prosecutor, judge, jury, sentencer, and collector, without any review or approval of its unilateral and largely secret actions. The DOJ assumed this all-encompassing role even though the settlement amount is the largest with a single entity in the 237 year history of the United States and even though it provides civil immunity for years of illegal conduct by a private entity related to an historic financial crash that has cause economic wreckage affecting virtually every single American. The Executive Branch simply does not have the unilateral power or authority to do so by entering a mere contract with the private entity without any constitutional checks and balances.”

The complaint seeks a declaration that, among other things,

“the DOJ violated the separation of powers doctrine by unilaterally finalizing the $13 billion Agreement without seeking judicial review and approval”

“the DOJ acted in excess of its statutory authority by unilaterally finalizing the $13 billion Agreement without seeking judicial review and approval”

“the DOJ acted arbitrarily and capriciously by unilaterally finalizing the $13 billion Agreement without seeking judicial review and approval.”

I agree with Professor Peter Henning who recently stated in his New York Times Dealbook column:

“The lawsuit faces substantial hurdles that make it unlikely to succeed. As a general matter, private parties do not have standing to challenge a decision by the government to settle a case. The Justice Department has broad discretion in how it chooses to exercise its authority, and courts rarely intervene to scrutinize a decision unless there is evidence involving improper discrimination.

Nevertheless, the frustration expressed by Better Markets about the process for determining what JPMorgan should have paid to resolve multiple investigations is fair.”

Reading Stack

For more on princelings and the hiring practices of certain financial institutions in China, see here from Bloomberg.

A dandy article here from Jon Eisenberg (K&L Gates) titled “Brother Can You Spare $8.9 Billion?  Making Sense of SEC Civil Money Penalties.”  In pertinent part, the article is about:

“Other than negotiations about the wording of settlement documents, agreeing to the amount of the money penalty is often the last barrier to resolution. And it’s one of the most frustrating because the amounts proposed may appear untethered to any principle or precedent.

In an effort to provide more clarity on SEC money penalties, we look at four sources that should inform the negotiations about those penalties: first, the explosive growth in the SEC’s authority to impose civil money penalties; second, the relevant statutory language since the SEC’s authority to impose civil money penalties comes from and is limited by Congress; third, two recent D.C. Circuit decisions making clear that there are meaningful limits on the Commission’s discretion in assessing money penalties; and fourth, the outcome in recent cases before SEC administrative law judges in which the amount of the penalties was contested.”

The article is not FCPA specific, but very much FCPA relevant, particularly given the SEC’s increased interest in resolving corporate FCPA enforcement actions via administrative actions.  In short, Eisenberg’s article is excellent.  Read it.

*****

A good weekend to all.

Friday Roundup

Friday, December 6th, 2013

Looking for talent … got talent, the DOJ is sued, the Corruption Perceptions Index, a pulse on FCPA Inc., and for the reading stack.  It’s all here in the Friday roundup.

Looking for Talent … Got Talent

If your firm or organization is looking for either a summer associate or full-time lawyer with a solid Foreign Corrupt Practices Act foundation, please e-mail me at fcpaprofessor@gmail.com.  This past semester, twenty Southern Illinois University law students completed a semester long class on the FCPA, FCPA enforcement and FCPA compliance.

Learning objectives for the class included:  (i) developing a comprehensive understanding of the FCPA’s anti-bribery provisions and books and records and internal controls provisions; (ii) analyzing legal, ethical and policy issues associated with FCPA enforcement; (iii) understanding the FCPA’s long tentacles and how actual FCPA enforcement actions brought by the DOJ and/or SEC are often just one consequence of FCPA scrutiny; and (iv) gaining practical FCPA compliance skills including the ability to conduct an FCPA risk assessment and develop FCPA compliance policies.

I am confident in saying that few, if any, law students in America have as solid a foundation in the FCPA and FCPA compliance as these students.  I encourage you to give them an opportunity.

The DOJ Is Sued

University of Virginia Law Professor Brandon Garrett and Reference Librarian Jon Ashley maintain the excellent Federal Organizational Prosecution Agreements website which contains hundreds of federal organizational prosecution agreements such as non-prosecution and deferred prosecution agreements … at least those in the public domain.

Recently Ashley filed this lawsuit against the DOJ under the Freedom of Information Act seeking release of a certain non-prosecution agreement.  The complaint asserts:

“Plaintiff is statutorily entitled to the disclosure of [the] non-prosecution agreement and [the DOJ] has improperly withheld the requested records in violation of the law and in opposition to the strong public interest in understanding the judicial system and why admitted wrongdoers are not criminally prosecuted.”

While lacking knowledge as to the specifics of the complaint, I applaud the lawsuit for seeking to shine a light on DOJ enforcement practices.

As noted in this prior post, the 2012 FCPA Guidance highlighted secret FCPA enforcement.  While I did not file a formal Freedom of Information Act request, I sought on several occasions to seek information from the DOJ regarding its secret FCPA enforcement practices.  In each instance, my requests were ignored.

Corruption Perceptions Index

Transparency International (“TI”) recently released its annual Corruption Perceptions Index (“CPI”) (see here).

The CPI ranks countries/territories based on how corrupt their public sector is perceived to be and is a composite index drawing on corruption-related data collected by a variety of institutions and reflecting the views of observers from around the world including those living and working in the countries/territories evaluated.

The top four (very clean) countries in the CPI were Denmark, New Zealand, Finland and Sweden. The bottom four (highly corrupt) countries were Somalia, North Korea, Afghanistan, and Sudan.

The United States placed 19th on the list of 177 countries.

The DOJ has spoken in religious terms regarding its FCPA enforcement actions as former Assistant Attorney General Lanny Breuer stated “we in the United States are in a unique position to spread the gospel of anti-corruption, because there is no country that enforces its anti-bribery laws more vigorously than we do.”

Yet, it remains a bit ironic that as the U.S. aggressively expands its Foreign Corrupt Practices Act enforcement practice and theories, the U.S. remains far from the top of the CPI.  The latest CPI should again cause us to pause as to our claimed exceptionalism and moral superiority on this topic.  For instance, see this prior post “We Really Ought to Pause and Reflect.”

See the “Double Standard” subject matter tag for more.

Pulse of FCPA Inc.

What is one reason Wal-Mart is spending in excess of $1 million per working day on its FCPA issues?  Because, in many instances corporate FCPA scrutiny has turned into a full employment act for FCPA Inc.

Reuters recently reported here that Wal-Mart “is paying for lawyers to represent more than 30 of its executives involved in a foreign corruption investigation, according to people familiar with the matter,  an unusually high number that shows the depth of the federal probe.”  The article states:

“In recent months, the U.S. government has brought in a number of senior Wal-Mart executives for questioning, including officials from corporate headquarters in Bentonville, Arkansas, the sources said. The move, along with widespread publicity about the probe, appears to have prompted executives to seek their own legal representation. The sources declined to name the executives who have submitted to interviews.”

As noted in this recent Friday roundup, there are few relevant data points associated with the pulse of FCPA Inc.  Much information is anecdotal, including the following from Legal Search Consultants Major, Lindsey & Africa in its Asia Legal Market, Semi-Annual Report.

“FCPA practices continue to grow with firms continuing to relocate specialists from their US offices to Asia. This is reflective of an effort to meet the unrelenting demand in investigations work. There seem to be few certainties in Asia, but one is that FCPA business will not be diminishing anytime soon.”

Reading Stack

An informative post recently on the FCPAmericas site titled “Conducting Effective FCPA Training in Latin America.”  The eight pointers discussed are true regardless of which region FCPA compliance is focused.

A little dickey bird whispers to thebriberyact.com here regarding U.K. DPAs and Bribery Act prosecutions.

For the resources stack, the OECD, the U.N. Office on Drugs and Crime, and the World Bank recently released here the “Anti-Corruption Ethics and Compliance Handbook for Business.”  It states:

“The handbook is not intended to create new standards or represent any form of legally binding requirement for businesses. It has been developed to serve as a useful, practical tool for companies seeking compliance advice in one, easy-to-reference publication.  The handbook is divided into three sections. The first section provides an overview of the international anti-corruption framework, within which companies conducting international business must operate. The second section provides a brief introduction to how companies can assess their risk in order to begin developing an effective anti-corruption ethics and compliance programme. The third and most significant section brings together the major business guidance instruments. A comparison of these instruments reveals that they all largely include the same basic anti-corruption ethics and compliance elements. These elements are further illustrated using real-life, anonymised case studies provided by companies. Finally, the handbook includes as an annex a quick-reference table providing a cross-comparison of all the major business guidance instruments referenced in this handbook.”

*****

A good weekend to all.

The 100th Edition Of The Friday Roundup

Friday, November 15th, 2013

Scrutiny alerts and updates, a first, blunt, and quotable.   It’s all here in this – the 100th edition - of the Friday roundup.

[I hope the Friday roundup is a value added end to your work week.  The Friday roundup alone represents several hours of work by highlighting recent FCPA and related news and developments not otherwise covered Monday - Thursday on FCPA Professor.  Ask yourself:  do you get your FCPA from FCPA Professor? If the answer is yes, you can help support this free website here]

Scrutiny Alerts and Updates

Wal-Mart

During its third quarter earnings call yesterday, Wal-Mart disclosed $69 million in “FCPA and compliance related expenses” in the quarter.  According to the company “approximately $43.0 million of these expenses represented costs incurred for the ongoing inquiries and investigations and approximately $26.0 million is related to our global compliance program and organizational enhancements.”

Doing the math, $69 million in the third quarter is approximately $1.06 million per working day.  As noted here, the figure for Q2 was approximately $1.26 million per working day and as noted here the figure for Q1 was approximately $1.16 million per working day.  For more on Wal-Mart’s pre-enforcement action professional fees and expenses, see this prior post.

For the fourth quarter, Wal-Mart estimated $75 – $80 million in expenses related to FCPA matters.

JPMorgan

The NY Times returns (here) to the JPMorgan story it first reported in August (see here for the prior post).  The article states:

“To promote its standing in China, JPMorgan Chase turned to a seemingly obscure consulting firm [Fullmark Consultants] run by a 32-year-old executive named Lily Chang.  Ms. Chang’s firm, which received a $75,000-a-month contract from JPMorgan, appeared to have only two employees. And on the surface, Ms. Chang lacked the influence and public name recognition needed to unlock business for the bank. But what was known to JPMorgan executives in Hong Kong, and some executives at other major companies, was that “Lily Chang” was not her real name. It was an alias for Wen Ruchun, the only daughter of Wen Jiabao, who at the time was China’s prime minister, with oversight of the economy and its financial institutions.

[...]

Now, United States authorities are scrutinizing JPMorgan’s ties to Ms. Wen, whose alias was government approved, as part of a wider bribery investigation into whether the bank swapped contracts and jobs for business deals with state-owned Chinese companies, according to the documents and interviews. The bank, which is cooperating with the inquiries and conducting its own internal review, has not been accused of any wrongdoing.  The investigation began with an examination of the bank’s decision to hire the daughter of a Chinese railway official and the son of a former banking regulator who is now the chairman of a state-controlled financial conglomerate.

[...]

Executives at JPMorgan’s headquarters in New York did not appear to be involved in retaining Fullmark, a decision that seemed to have fallen to executives in Hong Kong. And the documents reviewed by The Times do not identify a concrete link between the bank’s decision to hire children of Chinese officials and its ability to secure coveted business deals, a connection that authorities would probably need to demonstrate that the bank violated anti-bribery laws.”

Park-Ohio Holdings Corp.

The diversified manufacturing services and products holding company (here) disclosed as follows in a recent quarterly filing:

“In August 2013, the Company received a subpoena from the staff of the SEC in connection with the staff’s investigation of a third party. At that time, the Company also learned that the Department of Justice (DOJ) is conducting a criminal investigation of the third party. In connection with responding to the staff’s subpoena, the Company disclosed to the staff of the SEC that, in November 2007, the third party participated in a payment on behalf of the Company to a foreign tax official that implicates the Foreign Corrupt Practices Act (FCPA). The Board of Directors of the Company has formed a special committee to review the Company’s transactions with the third party and to make any recommendations to the Board of Directors with respect thereto. The Company intends to cooperate fully with the SEC and the DOJ in connection with their investigations of the third party and with the SEC in light of the Company’s disclosure. The Company is unable to predict the outcome or impact of the special committee’s investigation or the length, scope or results of the SEC’s review or the impact, if any, on its results of operations.”

Wynn Resorts

This previous Friday roundup highlighted the company’s disclosure that the SEC has ended its investigation of the company concerning a $135 million donation to the University of Macau.  In this recent filing, Wynn states as follows concerning a related DOJ investigation.

“[The DOJ] has been conducting a criminal investigation into Wynn Resorts’ donation to the University of Macau [...]. Wynn Resorts has not received any target letter or subpoena in connection with such an investigation.  Wynn Resorts intends to cooperate fully with the government in response to any inquiry related to the donation to the University of Macau.”

SEC’s First Individual DPA

When the SEC announced in January 2010 (see here for the prior post) a series of measures, including non-prosecution and deferred prosecution agreements, “to further strengthen its enforcement program by encouraging greater cooperation from individuals and companies in the agency’s investigations and enforcement actions,” I called the development a blow to those who prefer government law enforcement agencies to enforce a law in an open, transparent matter and in the context of an adversary proceeding.  Not that there was much judicial scrutiny of SEC enforcement prior to January 2010 (largely on account of the SEC’s then neither admit nor deny settlement policy), but the new measures, I noted, would lead to even less judicial scrutiny.

Earlier this week, the SEC announced ”a [five year] deferred prosecution agreement with a former hedge fund administrator who helped the agency take action against a hedge fund manager who stole investor assets.”  According to the SEC, the DPA – outside the context of the FCPA – is the SEC’s “first with an individual” and the SEC’s release further states:

“Deferred prosecution agreements (DPAs) encourage individuals and companies to provide the SEC with forthcoming information about misconduct and assist with a subsequent investigation.  In return, the SEC refrains from prosecuting cooperators for their own violations if they comply with certain undertakings.”

Obviously the above statement is an opinion statement, not a factual statement.

As highlighted in this prior post, the FCPA Guidance indicated that the DOJ has in the past used non-public non-prosecution against individuals in the FCPA context.  Despite claims by the DOJ that its FCPA enforcement program is transparent, my attempts to learn more about these secret FCPA NPA’s with individuals was unsuccessful.

Blunt

DOJ FCPA enforcement attorneys have publicly stated that among the many ways they learn of conduct which could implicate the FCPA is by reading the newspaper.

If so, this recent article in the Miami Herald may generate some interest.  In the article concerning the satellite telephone business in Cuba, a “Miami Man” states that ”he installs each system in Cuba for $3,500 to $4,200 — cash paid in South Florida, with part of the mark up going to bribes on the island. The costs are usually paid by U.S. relatives of the recipients.”

Quotable

From a recent poll regarding corruption in Africa: “corruption is a national sport every day at the direction of customs officials” (see here).

An extensive interview with U.K. Serious Fraud Director David Green (“DG”) in Fraud Magazine (“FM”) in which he discusses:  corporate criminal liability, facilitation payments, Bribery Act Inc., voluntary disclosure and DPAs.  Relevant excerpts include:

FM: What current changes, if any, to the legal system and or legislation would make the SFO more efficient?

DG: To our effectiveness and our reach, I would very much like the test for corporate criminal liability to be looked at again. As you know, in this country, it is extremely difficult to convict a company of an offence because the prosecution has to show that the controlling minds of the company — somebody at the board level — were complicit in the criminality you are trying to prove.  I think that bar is too high, and is a very unrealistic test — not least because I think anyone will agree that if you’re looking into allegations of corporate misconduct spookily the e-mail trail tends to dry up at a fairly junior level.  Where it can be shown that the company had really profited from the criminality of its employees then I think there is a sound case for expanding the ambit of section 7 of the U.K. Bribery Act. Section 7 creates the corporate offence of ‘failing to prevent bribery or corruption by an agent or employee’ with a statutory defence that they took all reasonable precautions.  Now why can’t that be extended to cover fraud and offences of dishonesty so the offence would be failing to prevent fraud or offenses of dishonesty by members of your staff? It seems to me absolutely right that a corporation should have criminal liability for that when it has profited from it. Why should a company which has, in the way I’ve explained, been complicit in criminality just throw a few people over the side and sail bravely on? Why shouldn’t it have its ears clipped and marked as a company that has had dishonest employees and benefitted from it?  Another argument is: Well you’d just be punishing a company for negligence. I would say it would be a pretty high degree of negligence when a company acts in that way and benefits from the dishonesty of its employees.

FM: Doesn’t the Bribery Act prejudice British business in that is a bit too harsh in relation to facilitation payments and hospitality payments?

DG: First of all, I don’t buy this argument that complying with the law is going to hold business back. Secondly, facilitation payments have always been illegal. However, it is a question of the public interest as to whether or not they are prosecuted.  What would be a common facilitation payment? A 20-pound note and a bottle of whisky to some [maritime] pilot to take your ship from somewhere to somewhere else in a single payment; the SFO wouldn’t be interested in that. [Maritime pilots will guide ships into ports for hire.] But if it was a course of conduct over a number of years, then, of course, that becomes not just a very small insignificant little bribe but actually a regular payment over time to ensure that you get that business.

FM: What do you say about those medium to small companies who have ignored the preventative measures required by the Bribery Act?

DG: Well, it’s always difficult, isn’t it? On the one hand, I am very conscious that since the enactment of the act there has grown up a Bribery Act industry in London populated by a lot of American and British lawyers, accountants and so-called experts. I even came across a firm the other day that actually offers certificates to companies saying that they are compliant, and I suppose if the company were to land in court they would try to produce this certificate to say, “We can’t be prosecuted because we’ve got a certificate.”  The effect of this is that these so-called experts have scared the pants off of medium and small enterprises. It is really a question of getting some sensible, reasonably priced legal advice to discern their risk areas and put in place basic safeguards. But the idea that the Serious Fraud Office is going after a ticket to Wimbledon or a bottle of Champagne is, and always has been, utter nonsense.  If, on the other hand, we saw a situation in which the entire board and their spouses of a major corporation were put up in London for a week and then given tickets for the men’s finals at Wimbledon with a couple of banquets before, during and afterwards, then that would be very worrying. Throw in first-class airfare and that would become extremely worrying.  But the key to all this in relation to bribery investigations and whether or not we are interested in them has to do with value and importance but also timing, the motive and the effect of it — was it done at a time when some enormously important decision was going down with a view to influencing it? This is fairly common sense; we use a reasonable approach.

FM: Will companies that self-report escape criminal proceedings?

DG: My predecessor had guidance on self-reporting, in which though it did not say it in so many words, was a very clear implication that if you self-reported as a company you would not be prosecuted, and there would be a civil disposal of what you had done. I disagree with that absolutely and fundamentally as a matter of principle because no prosecutor can ever give guarantees in advance. We have no idea what set of facts are going to come in through the door next. So, we have returned to the old guidance, which has always been there; we will apply the Code for the Crown Prosecutors. In other words, in each situation we would see if there’s enough evidence to prosecute. If there is, we consider if it’s in the public interest to prosecute this company. Now if a company were to come in and say, “Look, we have discovered this misconduct. We have conducted a full investigation; here are the results. We are willing for you to investigate it as you wish. We’ve gotten rid of all the people involved in this, we will hand over any illegal profits obtained as a result of this crime.” In such circumstances, one does struggle to think how it would be in the public interest to prosecute such a company. But it is a question of principle here. If you start — and I feel very strongly about this — if you start blurring the boundaries between what people involved in the criminal justice system do then it’s a dangerous path to follow. Prosecutors shouldn’t be doing deals or making offers in advance and defenders shouldn’t be too familiar with prosecutors. We need to stay where we are and within our own divisions. That’s my view.

FM: Could the deferred prosecution arrangement (DPA) be seen as a type of deal?

DG: Well, I think if you looked at the American model of DPAs you might think it could be described as a deal. We’ve adapted it for use in this country to have judicial involvement and scrutiny from the very beginning. The reason for that is to preserve the principle we have in this country, which they don’t have in the States, that sentencing is a matter for the judge. It’s not a matter for some cozy deal between prosecutor and defence.  If we believe a case is appropriate for a DPA we would go before a judge and say, “Judge, these are the charges which we would be minded to bring against these people. However, we think for these reasons it’s an appropriate case for a DPA. Do you agree?”  Now if the judge says, “No, I don’t I think this is a suitable case for a DPA,” we’ll carry on prosecuting. So, it is a transparent process. Ultimately, if a DPA did go ahead there would be a statement of facts read in court. Nothing would be hushed up.  You can’t really go wrong if you’re transparent. Things go wrong in the criminal justice system if anything appears to be opaque. You lose public confidence and you lose the confidence of the people involved.

Professor Ellen Podgor states, in pertinent part, in this New York Times opinion piece:

“If we intend to punish people, shouldn’t we reasonably expect that they knew their actions were crimes?  [...]  The accumulation of laws and rules has made it harder to assure that individuals who are punished understood that they were breaking the law.  When the law is clear, and an individual deliberately transgresses the law, punishment serves an important purpose.  Attributing criminality to business-related activities is not always so easy. The line between criminal activities and acceptable business judgments can be fuzzy. The conduct may not have a long biblical history of being offensive, and there may be no posted signs. [...]  In the corporate or financial world, multiple individuals may have a finger in a business decision — and some may be unaware that one has breached the law.  Add to this ambiguity in both the law and the corporate world that business-related decisions are often made by individuals who find themselves placed in a forest of regulations and criminal statutes with varying interpretations that even legal scholars can’t agree upon.  Overcriminalization presents unique issues in the white collar and business arena.  There are thousands of criminal statutes scattered throughout the federal code, and there are thousands of regulations with accompanying criminal penalties. The prosecutor’s toolbox also includes overly broad statutes like RICO, mail fraud, wire fraud and offenses like making false statements.   The bottom line is that the government’s power to indict has few restrictions, and overcriminalization provides federal prosecutors with super powers that they can easily abuse.  Congress’s continuous and haphazard adding of criminal statutes and regulations is making it more difficult to assure that individuals who are punished truly understand that they are breaking the law.”

*****

A good weekend to all.

Friday Roundup

Friday, September 13th, 2013

It’s an FCPA world Friday roundup.

According to my tally, in the last approximate 30 days, 11 companies have disclosed new instances of FCPA scrutiny and/or otherwise been the subject of media reports concerning conduct that could implicate the FCPA.  These “new” instances of scrutiny are in addition to several other companies that have recently disclosed expansion of existing FCPA inquiries.

This week’s scrutiny alerts and updates are set forth below.

Agilent Technologies

In its most recent quarterly filing, the company disclosed:

“As part of routine internal audit activities, the Company determined that certain employees of Agilent’s  subsidiaries in China did not comply with the Company’s Standards of Business Conduct and other policies.  Based on those findings, the Company has initiated an internal investigation, with the assistance of outside counsel, relating to certain sales of our products through third party intermediaries in China.  The  internal investigation includes a review of compliance by our employees in China with the requirements of the U.S. Foreign Corrupt Practices Act and other applicable laws and regulations.  On September 5, 2013, the Company voluntarily contacted the United States Securities and Exchange Commission and United States Department of Justice to advise both agencies of this internal investigation.  We will cooperate with any government investigation of this matter.  At this point, we cannot predict or estimate the duration, scope, cost, or result of this matter, or whether the government will commence any legal action, which could result in possible fines and penalties, criminal or civil sanctions, or other consequences.  Accordingly, no provision with respect to these matters has been made in the Company’s consolidated financial statements.  Adverse findings or other negative outcomes from any governmental proceedings could have a material impact on the Company’s consolidated financial statements in future periods.”

Deutsche Bank

The company, with shares listed on the New York Stock Exchange, was the focus of this recent Reuters article.  The article states:

“Japan’s securities market watchdog is investigating whether Deutsche Bank AG employees provided excessive entertainment to Japanese pension fund executives in breach of regulations, sources with knowledge of the matter said.  The Securities and Exchange Surveillance Commission (SESC) found evidence of potential infractions during a regular audit of Deutsche Securities Inc, the German bank’s investment banking arm in Tokyo, said the sources, who spoke on condition they not be identified because the investigation is ongoing. The employees had booked large expenses for entertainment involving pension fund executives, they said. This raised red flags for the regulators because the pension fund executives involved are legally considered public employees, subject to anti-bribery statutes, since they handle part of the national pension scheme.”

Gold Fields Limited

Last week, the South African company with ADR shares listed on the New York Stock Exchange, was the feature of this lengthy article in the Johannesburg Mail & Guardian newspaper.  In short, the article suggested that:

“Gold Fields has buried a New York law firm’s [Paul Weiss] finding that a R25-million share allocation to ANC chairperson Baleka Mbete constituted bribery. The law firm, commissioned by Gold Fields itself, found that the South African mining house had hugely increased Mbete’s cut in a contentious 2010 empowerment deal in response to an alleged threat by her representative. They recommended that Gold Fields “self report” the matter to the authorities. But the company’s board disregarded the advice – and instead decided not to have the findings written up.”

Earlier this week, Gold Fields issued this statement:

“Gold Fields Limited has been informed that it is the subject of a regulatory investigation in the United States by the US Securities and Exchange Commission relating to the Black Economic Empowerment transaction associated with the granting of the mining license for its South Deep operation. Given the early stage of this investigation, it is not possible to estimate reliably what effect, the outcome this investigation, any regulatory findings and any related developments may have on the Company.”

H-P

As noted in this previous post, H-P has been under FCPA scrutiny since 2010.  In its most recent quarterly filing, the company disclosed:

“Russia GPO and Other FCPA Investigations.    The German Public Prosecutor’s Office (“German PPO”) has been conducting an investigation into allegations that current and former employees of HP engaged in bribery, embezzlement and tax evasion relating to a transaction between Hewlett-Packard ISE GmbH in Germany, a former subsidiary of HP, and the General Prosecutor’s Office of the Russian Federation. The approximately €35 million transaction, which was referred to as the Russia GPO deal, spanned the years 2001 to 2006 and was for the delivery and installation of an IT network. The German PPO has issued an indictment of four individuals, including one current and two former HP employees, on charges including bribery, breach of trust and tax evasion. The German PPO has also asked that HP be made an associated party to the case, and, if the German PPO’s request is granted, HP would participate in any portion of the court proceedings that could ultimately bear on the question of whether HP should be subject to potential disgorgement of profits based on the conduct of the indicted current and former employees.

The U.S. Department of Justice and the SEC have been conducting an investigation into the Russia GPO deal and potential violations of the Foreign Corrupt Practices Act (“FCPA”). The agencies, as well as the Polish Central Anti-Corruption Bureau, are also conducting investigations into potential FCPA violations by an employee of Hewlett-Packard Polska Sp. z o.o., an indirect subsidiary of HP, in connection with certain public sector transactions in Poland. In addition, the agencies are conducting investigations into certain other public-sector transactions in Russia, Poland, the Commonwealth of Independent States, and Mexico, among other countries.

[...]

HP is cooperating with these investigating agencies.”

Wal-Mart

In its most recent quarterly filing, the company disclosed:

“The Audit Committee (the “Audit Committee”) of the Board of Directors of the Company, which is composed solely of independent directors, is conducting an internal investigation into, among other things, alleged violations of the U.S. Foreign Corrupt Practices Act (“FCPA”) and other alleged crimes or misconduct in connection with foreign subsidiaries, including Wal-Mart de México, S.A.B. de C.V. (“Walmex”), and whether prior allegations of such violations and/or misconduct were appropriately handled by the Company. The Audit Committee and the Company have engaged outside counsel from a number of law firms and other advisors who are assisting in the on-going investigation of these matters. The Company is also conducting a voluntary global review of its policies, practices and internal controls for FCPA compliance. The Company is engaged in strengthening its global anti-corruption compliance programs through appropriate remedial anti-corruption measures.  In November 2011, the Company voluntarily disclosed that investigative activity to the U.S. Department of Justice (the “DOJ”) and the Securities and Exchange Commission (the “SEC”). Since the implementation of the global review and the enhanced anti-corruption compliance programs, the Audit Committee and the Company have identified or been made aware of additional allegations regarding potential violations of the FCPA. When such allegations are reported or identified, the Audit Committee and the Company, together with their third party advisors, conduct inquiries and when warranted based on those inquiries, open investigations. Inquiries or investigations regarding allegations of potential FCPA violations have been commenced in a number of foreign markets where the Company operates, including, but not limited to, Brazil, China and India. The Company has been informed by the DOJ and the SEC that it is also the subject of their respective investigations into possible violations of the FCPA. The Company is cooperating with the investigations by the DOJ and the SEC. A number of federal and local government agencies in Mexico have also initiated investigations of these matters. Walmex is cooperating with the Mexican governmental agencies conducting these investigations. Furthermore, lawsuits relating to the matters under investigation have been filed by several of the Company’s shareholders against it, certain of its current directors, certain of its former directors, certain of its current and former officers and certain of Walmex’s current and former officers. The Company could be exposed to a variety of negative consequences as a result of the matters noted above. There could be one or more enforcement actions in respect of the matters that are the subject of some or all of the on-going government investigations, and such actions, if brought, may result in judgments, settlements, fines, penalties, injunctions, cease and desist orders, debarment or other relief, criminal convictions and/or penalties. The shareholder lawsuits may result in judgments against the Company and its current and former directors and officers named in those proceedings. The Company cannot predict at this time the outcome or impact of the government investigations, the shareholder lawsuits, or its own internal investigations and review. In addition, the Company expects to incur costs in responding to requests for information or subpoenas seeking documents, testimony and other information in connection with the government investigations, in defending the shareholder lawsuits, and in conducting the review and investigations. These costs will be expensed as incurred. For the three and six months ended July 31, 2013, the Company incurred expenses of approximately $82 million and $155 million respectively, related to these matters. Of these expenses, approximately $48 million and $92 million, respectively, represent costs incurred for the ongoing inquiries and investigations and $34 million and $63 million, respectively, relate to global compliance programs and organizational enhancements. These matters may require the involvement of certain members of the Company’s senior management that could impinge on the time they have available to devote to other matters relating to the business. The Company expects that there will be on-going media and governmental interest, including additional news articles from media publications on these matters, which could impact the perception among certain audiences of the Company’s role as a corporate citizen.  The Company’s process of assessing and responding to the governmental investigations and the shareholder lawsuits continues. While the Company believes that it is probable that it will incur a loss from these matters, given the on-going nature and complexity of the review, inquiries and investigations, the Company cannot reasonably estimate any loss or range of loss that may arise from these matters. Although the Company does not presently believe that these matters will have a material adverse effect on its business, given the inherent uncertainties in such situations, the Company can provide no assurance that these matters will not be material to its business in the future.”
*****
A good weekend to all.

Further To Wal-Mart’s Pre-Enforcement Action Professional Fees And Expenses

Wednesday, August 28th, 2013

This recent guest post on the FCPA Blog regarding Wal-Mart, specifically its disclosed pre-enforcement action professional fees and expenses, stated “some FCPA watchers are so indignant by the $300 million figure they have broken it down into FCPA compliance dollars spent per day …”.

That would be me (see here, here and here for prior posts).

And clearly I am not the only one that has taken note of Wal-Mart’s pre-enforcement action expenses.  Indeed, the FCPA Blog itself took note (here) and called my initial calculation of Wal-Mart’s per day expenses (when it was a mere $604,000 per working day) ”eye popping.”

Just yesterday, Reynolds Holding writing on his Breakingviews column -”Lawyers Need to Brake Their Bribe-Case Gravy Train” – stated:

“Lawyers need to pull the brake on their bribery-probe gravy train. Wal-Mart Stores shelled out about $80 million last quarter alone – some $1.25 million per working day – on an internal corruption investigation. [...] Wasteful scorched-earth legal tactics inflate costs, while potentially ruinous U.S. penalties make companies scared to skimp. Smarter lawyering could slow the runaway spending.  Scrutiny under the FCPA typically throws multinationals into attorney-hiring overdrive. Having legal eagles delve into corporate innards helps a company look cooperative and thereby win leniency from the government.   [...]  There is a better way. A records search at a multinational’s headquarters can quickly reveal how and, generally, where and to whom bribes are being paid, according to veterans of the Siemens case and others. Investigations in just a few countries can then ferret out the details of a global scheme. That’s often enough to reach a reasonable settlement with Uncle Sam.  Yet unnecessarily far-flung and costly probes persist. Not only does the prospect of enormous fees encourage lawyers running an investigation to engage in overkill. A company’s officers also don’t want to be seen to cut corners or get in the attorneys’ way. The usual healthy corporate tendency to police costs carefully doesn’t apply.  For big companies the waste may not show, either. Even a legal bill of, say, $500 million is a drop in the bucket for a company like Wal-Mart with revenue nearly 1,000 times that figure every year. That shouldn’t, however, let lawyers off the hook. Ethics rules require their fees to be reasonable. In bribery cases, that standard is at risk of becoming corrupted.”

The recent guest post on the FCPA Blog went on to state as follows.

“Over roughly the same period covered by the $300 million cost, Wal-Mart’s sales have been about $1 trillion ($1,000,000,000,000). Those FCPA compliance costs are less than one third of one percent of its sales. And with profits last year of about $17 billion,  Wal-Mart will survive its FCPA spending spree. The world’s largest retailer is finally investing in FCPA compliance in proportion to its size. It’s playing catch up for a decade of what appears to be FCPA neglect.”

Time-out.

The necessity and legitimacy of FCPA pre-enforcement action professional fees and expenses ought not be measured by a company’s profitability or overall sales.

Nor is it necessarily appropriate to say that Wal-Mart is finally investing in FCPA compliance in proportion to its size.  The inference is that a large company with large profits ought to spend more on FCPA compliance than a smaller company with smaller profits.

FCPA risk of course is unique to specific industries, and even within the same industry, often to specific companies.  It is not hard to imagine a small company with smaller profits having a higher FCPA risk profile than a large company with larger profits.

Nor is it necessarily appropriate to say that Wal-Mart is “playing catch up for a decade of what appears to be FCPA neglect.”  Presumably this sentence is based on one read of the Wal-Mart New York Times articles.  It appears, even accepting everything in the Times articles as gospel-truth, that Wal-Mart had some corporate governance failures or deficiencies at certain critical points.  For more on this see my article “Foreign Corrupt Practices Act Enforcement as Seen through Wal-Mart’s Potential Exposure.”

However, as noted in this prior post, let’s not forget other information in the Times articles.

First, according to the Times, Wal-Mart’s subsidiary in Mexico “had taken steps to conceal [the payments] from Wal-Mart’s headquarters in Bentonville, Ark.” and Wal-Mart Mexico’s chief auditor altered reports sent to Bentonville discussing various problematic payments.

Second, according to the Times, Wal-Mart’s investigation “was uncovering the kinds of problems and oversights that plague many global corporations.”

Third, according to the Times, Wal-Mart’s internal reviews began in Spring 2011 – long before the Times April 2012 article, when Wal-Mart’s general counsel learned of an FCPA enforcement action against Tyson Foods (like Wal-Mart, a company headquartered in Arkansas).

Finally, the recent guest post on the FCPA Blog states that Wal-Mart’s pre-enforcement action professional fees and expenses can “be looked at like accumulated liability for a toxic waste  site: First a determination of the origin, size and places of the contamination, then the costs of the clean up and damages.”

Accepting the analogy, perhaps you’ve heard that Superfund and other environmental clean-up costs frequently turn into boondoggles as well. (See e.g., here).